UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY EXCHANGE REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8120
BAIRNCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3057520
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
2251 Lucien Way, Suite 300, Maitland, FL 32751
(Address of principal executive offices) (Zip Code)
(407) 875-2222
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE ISSUERS)
Indicate the number of shares outstanding of each issuer's classes of
common stock, as of the latest practicable date.
10,327,634 shares of Common Stock Outstanding as of October 27, 1995.
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE QUARTERS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(Unaudited)
1995 1994
Net sales $ 37,386,000 $ 35,918,000
Cost of sales 24,511,000 23,054,000
Gross profit 12,875,000 12,864,000
Selling and administrative
expenses 9,292,000 9,396,000
Operating profit 3,583,000 3,468,000
Interest expense, net 479,000 559,000
Income before income taxes 3,104,000 2,909,000
Provision for income taxes 1,211,000 1,164,000
Net Income $ 1,893,000 $ 1,745,000
Primary and fully diluted earnings
per share of common stock
(Note 3) $ 0.18 $ 0.17
Dividends per share of common stock $ 0.05 $ 0.05
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(Unaudited)
1995 1994
Net sales $114,218,000 $108,571,000
Cost of sales 73,767,000 68,435,000
Gross profit 40,451,000 40,136,000
Selling and administrative
expenses 29,404,000 29,631,000
Operating profit 11,047,000 10,505,000
Interest expense, net 1,553,000 1,596,000
Income before income taxes 9,494,000 8,909,000
Provision for income taxes 3,639,000 3,564,000
Net Income $ 5,855,000 $ 5,345,000
Primary and fully diluted earnings
per share of common stock
(Note 3) $ 0.56 $ 0.51
Dividends per share of common stock $ 0.15 $ 0.15
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(Unaudited)
1995 1994
ASSETS
Current assets:
Cash and cash equivalents $ 916,000 $ 1,478,000
Accounts receivable, less
allowances of $1,036,000 and
$1,097,000, respectively 23,522,000 20,885,000
Inventories (Note 4) 24,455,000 20,042,000
Deferred income taxes 5,355,000 4,941,000
Other current assets 1,469,000 4,785,000
Total current assets 55,717,000 52,131,000
Plant and equipment, at cost 78,364,000 76,664,000
Less - Accumulated depreciation and
amortization (43,334,000) (40,375,000)
Plant and equipment, net 35,030,000 36,289,000
Cost in excess of net assets of purchased
businesses 8,204,000 8,201,000
Other assets 2,384,000 2,622,000
Net assets of discontinued operations (Note 2) 3,459,000 3,529,000
$104,794,000 $102,772,000
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities:
Short-term debt $ 4,958,000 $ 4,710,000
Current maturities of long-term debt 188,000 201,000
Accounts payable 8,649,000 9,762,000
Accrued expenses (Note 5) 13,958,000 11,181,000
Total current liabilities 27,753,000 25,854,000
Long-term debt 22,886,000 26,864,000
Deferred income taxes 3,416,000 3,743,000
Other liabilities 2,529,000 2,314,000
Stockholders' Investment:
Preferred stock, par value $.01, 5,000,000
shares authorized, none issued -- --
Common stock, par value $.01, 30,000,000
shares authorized, 10,972,499 and
10,952,124 issued, respectively 110,000 109,000
Paid-in capital 50,458,000 49,922,000
Retained earnings 8,049,000 3,766,000
Treasury stock, at cost, 568,165 and
451,865 shares, respectively (10,407,000) (9,800,000)
Total stockholders'investment 48,210,000 43,997,000
$104,794,000 $102,772,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
(Unaudited)
1995 1994
Cash Flows from Operating Activities:
Net income $ 5,855,000 $ 5,345,000
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 4,939,000 5,015,000
Loss on disposal of equipment -- 581,000
Deferred income taxes (741,000) (159,000)
Changes in current assets and liabilities:
(Increase) in accounts receivable (2,637,000) (2,837,000)
(Increase) in inventories (4,413,000) (1,787,000)
Decrease in other current assets 3,316,000 1,023,000
(Decrease) increase in accounts payable (1,113,000) 1,747,000
Increase in accrued expenses 2,777,000 2,504,000
Increase in other liabilities 215,000 3,000
Translation adjustment and other, net 997,000 623,000
Net cash provided by operating activities 9,195,000 12,058,000
Cash Flows from Investing Activities:
Capital expenditures (3,746,000) (3,670,000)
Proceeds from sale of facility -- 613,000
Funds provided by discontinued operations 70,000 410,000
Net cash (used in) investing activities (3,676,000) (2,647,000)
Cash Flows from Financing Activities:
Net repayments of external debt (4,000,000) (7,670,000)
Exercise of stock options 102,000 --
Purchase of treasury stock (607,000) --
Payment of dividends (1,576,000) (1,575,000)
Net cash (used in) financing activities (6,081,000) (9,245,000)
Net (decrease) increase in cash and
cash equivalents (562,000) 166,000
Cash and cash equivalents, beginning of period 1,478,000 1,383,000
Cash and cash equivalents, end of period $ 916,000 $ 1,549,000
The accompanying notes are an integral part of these financial
statements.
BAIRNCO CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(Unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of Bairnco Corporation and its subsidiaries (Bairnco or the
Corporation) after the elimination of all material intercompany
accounts and transactions.
The unaudited financial information included herein reflects all
adjustments of a normal recurring nature which the Corporation's
management considers necessary for a fair summarized presentation of
the consolidated financial statements included in this Form 10-Q
filing. The consolidated results of operations for the quarter and
nine months ended September 30, 1995, are not necessarily indicative
of the results of operations for the full year.
(2) Discontinued Operations
As discussed in Note 3 to Bairnco's 1994 Audited Consolidated
Financial Statements, the Corporation adopted a restructuring plan as
of December 31, 1993 which included a formal plan of divestiture
relating to the businesses that comprised Bairnco's Specialty
Construction Products segment and secure communications electronics
operations. Accordingly, these businesses were classified as
discontinued operations for financial reporting purposes as of
December 31, 1993.
The smallest and last remaining operation of the Specialty
Construction business and the secure communications business remain
to be sold and continue to be reported as discontinued operations.
Net sales from the discontinued operations for the quarters ended
September 30, 1995 and October 1, 1994 were $2.4 million and $4.5
million, respectively. Net sales from the discontinued operations for
the nine months ended September 30, 1995 and October 1, 1994 were $7.9
million and $16.1 million, respectively. The remaining discontinued
operations are expected to be disposed of during the fourth quarter
of 1995.
(3) Earnings per Common Share
Earnings per common share are based on the weighted average number
of shares outstanding during the periods as follows:
Third Quarter First Nine Months
1995 1994 1995 1994
Primary 10,474,367 10,500,000 10,492,388 10,500,000
Fully Diluted 10,474,974 10,500,000 10,494,956 10,500,000
Primary and fully diluted earnings per share include all common
stock equivalents. Statements showing the calculations of primary and
fully diluted earnings per share for the quarters ended September 30,
1995 and October 1, 1994, and for the nine months ended September 30,
1995 and October 1, 1994, are included as Exhibit 11.1 and Exhibit
11.2, respectively, to this Quarterly Report on Form 10-Q.
(4) Inventories
Inventories consisted of the following as of September 30, 1995
and December 31, 1994:
1995 1994
Raw materials and supplies $ 4,843,000 $ 4,794,000
Work in process 5,955,000 4,767,000
Finished goods 13,657,000 10,481,000
Total inventories $ 24,455,000 $ 20,042,000
(5) Accrued Expenses
Accrued expenses consisted of the following as of September 30,
1995 and December 31, 1994:
1995 1994
Salaries and wages $ 2,017,000 $ 2,521,000
Income taxes 1,388,000 315,000
Insurance 1,826,000 2,165,000
Litigation 1,930,000 2,163,000
Other accrued expenses 6,797,000 4,017,000
Total accrued expenses $ 13,958,000 $ 11,181,000
(6) Contingencies
Bairnco Corporation and its subsidiaries are defendants in certain
legal actions which are discussed more fully in Part II, Item 1
("Legal Proceedings") of this filing.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
accompanying Consolidated Financial Statements and related notes and
with Bairnco's Audited Consolidated Financial Statements and related
notes for the year ended December 31, 1994.
Bairnco Corporation is a diversified multinational company that
operates two distinct businesses: Arlon and Kasco.
Engineered materials and components are designed, manufactured and
sold under the Arlon brand to electronic, industrial and commercial
markets. These products are based on a common technology in coating,
laminating and dispersion chemistry. Arlon's principal products
include high technology materials for the printed circuit board
industry, cast and calendered vinyl film systems, custom engineered
laminates and pressure sensitive adhesive systems and silicone rubber
products used in a broad range of industrial, consumer and commercial
products.
Replacement products and services are manufactured and distributed
under the Kasco name principally to retail food stores and meat,
poultry and fish processing plants throughout the United States,
Canada and Europe. The principal products include replacement band
saw blades for cutting meat, fish, wood and metal, and on site
maintenance services for the retail food industry primarily in the
meat and deli departments. Kasco also distributes equipment to the
food industry in Canada and France. These products are sold under a
number of brand names including Kasco in the U.S. and Canada, Atlantic
Service in the United Kingdom and Bertram & Graf and Biro in Europe.
Comparison of Third Quarter 1995 to Third Quarter 1994
Sales in the third quarter of 1995 were $37,386,000 a 4.1%
increase over sales of $35,918,000 in the third quarter of 1994.
Sales of Arlon engineered materials and components increased 10.6% due
to growing sales to the high end and microwave printed circuit board
markets. Sales of Kasco replacement products and services declined
7.3% due to the planned reduction in Kasco's North American service
center revenues.
Gross profit of $12,875,000 was essentially level with last year's
$12,864,000. The gross profit margin as a percent of sales decreased
from 35.8% in 1994 to 34.4% in 1995 due to the continuing change in
the mix of business highlighted by the growing but lower margin
commercial circuit board materials.
Selling and administrative expenses decreased $104,000 and also
declined as a percent of sales from 26.2% in 1994 to 24.9% in 1995.
Consistent with our long term effort to improve our selling and
marketing efforts, sales expense increased slightly while
administrative expenses were again reduced.
Interest expense decreased to $479,000 from $559,000 last year.
The decrease in interest expense was due to a reduction in average
indebtedness outstanding in the third quarter of 1995 of approximately
$10,500,000 from the third quarter of last year, which was partially
offset by increased short term interest rates.
The effective tax rate for the third quarter of 1995 was 39% as
compared to 40% in 1994. The provision for income taxes in both
periods includes all applicable federal, state, local and foreign
income taxes.
Net income increased 8.5% to $1,893,000, or $0.18 per share, from
$1,745,000, or $0.17 per share.
Comparison of First Nine Months 1995 to First Nine Months 1994
Sales for the first nine months of 1995 were $114,218,000, an
increase of 5.2%, as compared with $108,571,000 in 1994. Net income
increased 9.5% to $5,855,000, or $0.56 per share, from $5,345,000, or
$0.51 per share.
The effective tax rate for the first nine months of 1995 was 38.3%
as compared to 40% in 1994. The provision for income taxes in both
periods includes all applicable federal, state, local and foreign
income taxes.
Liquidity and Capital Resources
At September 30, 1995 Bairnco's total debt was $28,032,000
compared to $31,775,000 at the end of 1994. At September 30, 1995
approximately $24.3 million was available for borrowing under the
Corporation's secured reducing revolving credit agreement ("Credit
Agreement") with a consortium of four banks. In addition,
approximately $3.9 million was available under various short term
domestic and foreign uncommitted credit facilities. Under the terms
of the Credit Agreement, the maximum amount available for borrowings
will be reduced by $3.0 million as of January 1, 1996.
At September 30, 1995, Bairnco had working capital of
approximately $28.0 million compared to $26.3 million at December 31,
1994.
Capital expenditures are currently running below depreciation and
well below plan. The need for the major capacity addition
contemplated in the capital expenditures plan has been shifted into
next year as the result of a series of productivity improvements.
Depending on the timing of other specific projects, it is now expected
that capital expenditures will approximate depreciation for the full
year.
Cash provided by operating activities plus the amounts available
under the existing credit facilities are expected to be sufficient to
fulfill Bairnco's anticipated cash requirements in 1995.
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Since its announcement in January 1990 of its intention to spin
off Keene, Bairnco has been named as a defendant in a number of
individual personal injury and wrongful death cases in which it is
alleged that Bairnco is derivatively liable for the asbestos-related
claims against Keene. In 1993, Bairnco and certain of its present and
former officers and directors were also named as defendants in two
purported class actions in which the same types of claims were made.
Both of these purported class actions, which were consolidated in the
United States District Court for the Southern District of New York,
were subsequently stayed by order of the Bankruptcy Court for the
Southern District of New York, as described in the following
paragraph.
On December 6, 1993, Keene filed for protection under Chapter 11
of the Bankruptcy Code. The filing and certain subsequent proceedings
led to a stay of the asbestos-related individual and class actions
referred to above. On May 5, 1995, the Bankruptcy Court overseeing
the reorganization of Keene entered an order allowing the Creditors'
Committee to assume from Keene responsibility for the pursuit of
claims arising out of the transfer of assets for value by Keene to
other subsidiaries of Bairnco and the spinoffs of certain
subsidiaries, including Keene, by Bairnco. On June 8, 1995, the
Creditors' Committee commenced an adversary proceeding in the
Bankruptcy Court against Bairnco and others alleging that the
transfers of assets by Keene were fraudulent and otherwise violative
of law and seeking compensatory damages of $700 million, plus interest
and punitive damages. Bairnco and other defendants have sought to
have the proceeding removed to the United States District Court for
the Southern District of New York to the judge before whom the class
actions described above are pending. No answers or responsive
pleadings have yet been filed in the adversary proceeding, and it has
been stayed by the Bankruptcy Court through November 30, 1995.
Management believes that Bairnco has meritorious defenses to all
claims or liability purportedly derived from Keene and that it is not
liable, as an alter ego, successor, fraudulent transferee or
otherwise, for the asbestos-related claims against Keene or with
respect to Keene products.
Bairnco is party to a separate action brought by Keene in the
United States Bankruptcy Court for the Southern District of New York
in which Keene seeks the exclusive benefit of tax refunds attributable
to the carryback by Keene of certain net operating losses,
notwithstanding certain provisions of tax sharing agreements between
Keene and Bairnco. (After filing this action, Keene ceded control of
the action to the Creditors' Committee.) Pending resolution of the
dispute by the Bankruptcy Court, any refunds actually received are to
be placed in escrow. Keene alleges that the refunds in question could
total approximately $30 million. There can be no assurance whatsoever
that refunds in such amount will be payable or that resolution of the
dispute with Keene will result in the release of any portion of the
refunds to Bairnco.
Bairnco Corporation and its subsidiaries are defendants in a
number of other actions. Management of Bairnco believes that the
disposition of these other actions, as well as the actions and
proceedings described above, will not have a material adverse effect
on the consolidated results of operations or the financial position
of Bairnco Corporation and its subsidiaries as of September 30, 1995.
Item 2. OTHER INFORMATION
None.
Item 3. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 4. EXHIBITS
Exhibit 11.1: Calculation of Primary and Fully Diluted Earnings
per Share for the Quarters ended September 30, 1995 and October 1,
1994.
Exhibit 11.2: Calculation of Primary and Fully Diluted Earnings
per Share for the Nine Months ended September 30, 1995 and October
1, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Bairnco has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
BAIRNCO CORPORATION
(Registrant)
/s/ J. Robert Wilkinson
J. Robert Wilkinson
Vice President Finance
and Treasurer
(Chief Financial Officer)
DATE: November 8, 1995